Editor's Note: Our Retail team is hosting a Best Idea short call on Hanesbrands with institutional investors today. Email sales@hedgeye.com for more info.
SOME KEY DISCUSSION POINTS:
- Hanes has top share in a slow growth category.
- Feeling competitive pressure at high-end (Tommy John, Under Armour, Lululemon) and low-end (Gildan) = negative organic growth. The latter is particularly under-appreciated.
- Capacity utilization at owned factories is at peak (90%+). People do not realize this as it is not readily disclosed.
- Margins at peak 15.5% -- higher than Nike (not a direct competitor, but the comparison is telling). Trough margin is 8-9%. It will see that level again.
- As growth slows, doing deals at peak earnings and multiples to goose perceived/reported growth.
- Latest deal is a non-scalable underwear company in Australia. They don't have our call that Australian economy faces a massive headwind as consumers run out of financial assets to draw upon to fuel consumption.
- HBI takes more special charges than any company we've seen in retail. Strips out all investments to take up margins and get management paid.
- Management selling/stepping down.
- $5 upside, $15 downside.
